BPLI Holdings Inc. · custom courseware development, training products, low cost simulation and in-service support solutions to improve the safety, productivity and efficiency of

BPLI Holdings Inc. (formerly Bluedrop Performance Learning Inc.)

Notice of No Auditor Review of Interim Financial Statements

The accompanying unaudited condensed consolidated interim financial statements of BPLI Holdings

Inc. (formerly Bluedrop Performance Learning Inc.) (the Company) have been prepared by and are

the responsibility of the Company’s management.

In accordance with National Instrument 51-102, the Company discloses that its independent auditor

has not performed a review of these condensed consolidated interim financial statements in

accordance with the standards established by the Chartered Professional Accountants of Canada for

a review of interim financial statements by an entity’s auditor.

Condensed Consolidated Interim Financial Statements

Six months ended March 31, 2020

(unaudited)

Contents

Consolidated Statements of Financial Position 3

Consolidated Statements of Comprehensive Income (loss) 4

Consolidated Statements of Changes in Equity 5

Consolidated Statements of Cash Flows 6

Notes to the Condensed Consolidated Interim Financial Statements 7

BPLI Holdings Inc.Consolidated Statements of Financial Position March 31 September 30

Unaudited 2020 2019

In Canadian dollars

ASSETS

Current assets

Cash $ 1,172,865 150,488

Accounts receivable (Note 4) 7,173,449 7,905,225

Contract assets 1,278,938 1,688,607

Work in progress 851,241 33,989

Other current assets (Note 5) 591,017 434,885

11,067,510 10,213,194

Work in progress - 607,019

Deferred tax assets 2,094,817 2,808,350

Goodwill and other intangible assets (Note 6) 2,735,219 2,938,908

Property and equipment (Note 7) 833,009 904,742

Right-of-use assets (Note 8) 2,325,294 -

Other long-term assets (Note 5) 254,191 98,438

$ 19,310,040 17,570,651

LIABILITIES AND EQUITY

Current liabilities

Bank indebtedness (Note 9) $ - 970,174

Accounts payable and accruals 2,679,302 3,937,378

Deferred development funding (Note 10) 783,677 -

Contract liabilities 4,740,315 4,994,893

Current portion of long-term debt (Note 9) 626,802 666,703

Other current liabilities (Note 11) 920,476 393,207

9,750,572 10,962,355

Long-term debt (Note 9) 2,228,748 2,311,843

Discounted royalty obligations (Note 12) 3,891,127 3,851,295

Long-term contract liabilities 310,256 130,583

Deferred tax liabilities 269,714 305,672

Other long-term liabilities (Note 11) 1,875,238 5,213

18,325,655 17,566,961

Equity

Share capital (Note 13) 6,916,378 6,916,378

Contributed surplus 1,305,008 1,305,008

Deficit (7,237,001) (8,217,696)

984,385 3,690

$ 19,310,040 17,570,651

Approved on Behalf of the Board

Derrick H. Rowe Emad Rizkalla

Director Director

See notes to the condensed consolidated interim financial statements 3

BPLI Holdings Inc.Consolidated Statements of Comprehensive Income (Loss)

Unaudited

Six months ended March 31

In Canadian dollars

2020 2019 2020 2019

Revenue

Courseware development services $ 1,465,051 1,546,981 $ 3,212,134 2,713,533

In-service support 3,307,426 2,548,386 6,033,707 4,610,600

Software licensing and subscriptions 1,076,573 779,398 2,230,928 1,439,341

Simulation products 322,434 148,514 836,916 148,514

6,171,484 5,023,279 12,313,685 8,911,988

Direct costs 2,827,265 2,668,568 5,766,226 4,991,391

Gross profit 3,344,219 2,354,711 6,547,459 3,920,597

Expenses

Sales and marketing 541,774 509,698 1,035,609 1,073,249

General and administration 1,201,090 1,831,532 2,477,028 3,088,130

Research and development costs 1,627,854 1,610,399 2,900,099 2,779,289

Government assistance and other funding (Note 14) (791,686) (435,036) (2,749,798) (687,955)

Finance costs, net (Note 15) 161,326 217,641 508,831 510,832

Depreciation and amortization (Note 6, 7 and 8) 328,004 171,093 662,219 341,664

Other (gains) and losses (Note 16) (191,734) 173 (110,961) (54,995)

2,876,628 3,905,500 4,723,027 7,050,214

Profit (loss) before income taxes 467,591 (1,550,789) 1,824,432 (3,129,617)

Income tax expense (recovery)

Current (39,203) - 166,162 -

Deferred 309,136 (457,482) 677,575 (898,953)

269,933 (457,482) 843,737 (898,953)

Net profit (loss) and

comprehensive income (loss) $ 197,658 (1,093,307) $ 980,695 (2,230,664)

Net profit (loss) per share

Basic $ 0.00 (0.01) $ 0.01 (0.02)

Diluted $ 0.00 (0.01) $ 0.01 (0.02)

Weighted average number of

shares outstanding (Note 13)

Basic 101,901,142 94,946,368 101,901,142 93,512,714

Diluted 101,901,142 94,946,368 101,901,142 93,512,714


Three Months Ended Six Months Ended

March 31 March 31

BPLI Holdings Inc.Consolidated Statements of Changes in Equity

Unaudited

Six months ended March 31

In Canadian dollars

Ordinary

Common Shares

Share

Capital

Contributed

surplus Deficit Total

October 1, 2018 97,933,776 5,457,889$ 1,645,422$ (3,840,920)$ 3,262,391$

Share-based compensation - - 1,604 - 1,604

Exercise of share options 9,943,517 1,469,464 (342,018) - 1,127,446

Repurchase of shares under normal course -

issuer bid (Note 13) (219,500) (10,975) - (17,665) (28,640)

- - - (2,230,664) (2,230,664)

March 31, 2019 107,657,793 6,916,378 1,305,008 (6,089,249) 2,132,137

Net loss and comprehensive loss - - - (2,128,447) (2,128,447)

September 30, 2019 107,657,793 6,916,378 1,305,008 (8,217,696) 3,690$

Net profit (loss) and comprehensive income (loss) - - - 980,695 980,695

March 31, 2020 107,657,793 6,916,378$ 1,305,008$ (7,237,001)$ 984,385$


Net loss and comprehensive loss

BPLI Holdings Inc.Consolidated Statements of Cash Flows

Six months ended March 31 2020 2019

In Canadian dollars

Increase (decrease) in cash

Operating activities

Net income (loss) for the period $ 980,695 (2,230,664)

Items not affecting cash:

Share-based compensation - 1,604

Depreciation and amortization 662,219 341,664

Non-cash government assistance (475,080) (352,237)

Finance costs 688,316 634,784

Finance income (179,485) (123,952)

Deferred taxes 677,575 (898,953)

Unrealized loss on derivative instruments (33,725) 32,389

Gain on settlement of lease liability (4,000) -

Net foreign exchange differences 55,291 (21,901)

Interest paid (43,986) 9,187

2,327,820 (2,608,079)

Changes in non-cash working capital (Note 17) 69,240 1,984,319

Net change in cash from operating activities 2,397,060 (623,760)

Investing activities

Purchase of property and equipment (146,949) (361,998)

Net change in cash from investing activities (146,949) (361,998)

Financing activities

Advances of long-term debt 667,701 470,432

Repayment of lease obligations (274,014) (11,051)

Repayment of long-term debt (466,505) (1,222,047)

Repayment of discounted royalty obligations (117,981) (105,250)

Share options exercised - 1,127,446

Repurchase of shares under normal course issuer bid - (28,640)

Interest paid (12,253) (41,356)

Net change in cash from financing activities (203,052) 189,534

Increase (decrease) in cash 2,047,059 (796,224)

Cash, beginning of period (819,686) 1,638,177

Net foreign exchange impact on cash (54,508) 20,956

Cash, end of period $ 1,172,865 862,909


BPLI Holdings Inc.Notes to the Condensed Consolidated Interim Financial Statements


In Canadian dollars

1. Nature of operations

Bluedrop Training & Simulation Segment Bluedrop Learning Networks Segment

Bluedrop Training & Simulation Inc. Bluedrop Learning Networks Inc.

Bluedrop Simulation Services Inc.

2. Basis of presentation

3. Significant accounting policies and adoption of new accounting standards

(a) Estimation uncertainty - Impact of COVID-19 global pandemic

(b) IFRS 16 Leases

7

IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases and IFRIC 4 Determining whether an arrangement contains a lease .

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosures of leases and requires lessees to account

for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two

recognition exemptions for lessees, leases of ‘low-value’ assets and short-term leases (i.e. term of 12 months or less). At the

commencement of a lease, a lessee will recognize a lease liability and a right of use asset representing the right to use the underlying

asset during the lease term. This standard is effective for annual periods beginning on or after January 1, 2019, and the Company has

adopted the standard on October 1, 2019.

In March 2020, the World Health Organization declared coronavirus (COVID-19) as a global pandemic. This contagious disease outbreak

resulted in the governments worldwide enacting emergency measures to combat the spread of the virus, which includes the

implementation of travel bans, self-imposed quarantine periods, and social distancing. These measures could impact the Company’s

operations whether through supply chain or demand. Although the ultimate duration and impacts of the COVID-19 pandemic are not

currently known, management has used the best data available as at March 31, 2020 in determining its estimates and the assumptions

that affect the carrying amounts of assets and liabilities, and reported earnings for the period. Actual results could differ from those

estimates. The estimates that the Company considers could be most significantly impacted by COVID-19 include revenue recognition and

impairment of financial assets.

These condensed consolidated interim financial statements present the Company’s financial position and financial results under

International Financial Reporting Standards (IFRS) and in accordance with International Accounting Standard (IAS) 34 Consolidated

Interim Financial Reporting using accounting policies consistent with IFRS and as issued by the International Accounting Standards Board

(IASB). These condensed consolidated interim financial statements have been prepared using accounting policies consistent with those

used in the preparation of the Company’s audited annual financial statements for the year ended September 30, 2019, except as identified

in Note 3. The condensed consolidated interim financial statements do not include all of the information required for annual financial

statements and should be read in conjunction with the financial statements of the Company as at and for the year ended September 30,

2019.

These financial statements have been prepared on the historical cost basis except for the revaluation of certain financial assets and

liabilities, which are measured at their fair value, and are presented in Canadian dollars.

The accounting policies have been applied consistently in the preparation of the financial statements of all periods presented.

BPLI Holdings Inc. (formerly Bluedrop Performance Learning Inc.) (“the Company”) was continued under the Corporations Act of

Newfoundland and Labrador on January 26, 2012. On March 27, 2019, the Company was discontinued under the Corporations act of

Newfoundland and Labrador and continued under the Canada Business Corporations Act. On March 10, 2020, Bluedrop Performance

Learnings Inc. changed names to BPLI Holdings Inc. These consolidated financial statements comprise the Company and its 100% owned

operating subsidiaries as follows:

The Company provides e-learning and course development services and offers online training solutions for businesses and individuals

through cloud-based learning management solutions and traditional learning management systems. In addition, the Company provides

custom courseware development, training products, low cost simulation and in-service support solutions to improve the safety,

productivity and efficiency of military and civil aviation personnel through its Training and Simulation operations. The Company is

domiciled in Canada and its registered office is located at 18 Prescott Street, St. John’s, Newfoundland and Labrador, A1C 3S4.

These condensed consolidated interim financial statements were approved and authorized for issuance by the Board of Directors on May

28, 2020.



In Canadian dollars

3. Significant accounting policies and adoption of new accounting standards (continued)

Minimum lease payments under operating leases as at September 30, 2019 $ 3,296,693

Recognition exemption for:

Short-term leases (2,180)

Reasonably certain extension options 846,720

Variable non-lease components (1,346,771)

Lease obligation as at October 1, 2019 (gross, without discounting) 2,794,462

Effect from discounting at the incremental borrowing rate as at October 1, 2019 (281,062)

Liabilities recognized based on initial application of IFRS 16 as at October 1, 2019 2,513,400

Current portion of lease liabilities as at September 30, 2019 18,010

Long-term portion of lease liabilities as at September 30, 2019 5,212

Total lease liabilities as of October 1, 2019 $ 2,536,622

Accounting Policy

8

The Company has elected to adopt the standard using the modified retrospective method and therefore comparative information for

fiscal 2019 has not been restated. The Company has recognized new assets and liabilities for all leases that were previously classified

as operating leases, other than those that were excluded due to the elected practical expedients. The Company applied the following

practical expedients upon transition:

• The previous determination pursuant to IAS 17 and IFRIC 4, Determining Whether an Arrangement Contains a Lease, of whether a

contract is a lease has been maintained for existing contracts;

• The Company exercised the option not to apply the new recognition requirements to short-term leases with a term of 12 months or

less (and no purchase option) and leases of low-value assets;

• Initial direct costs will not be taken into account in the initial measurement of the right-of-use assets as at October 1, 2019;

• The Company relied on the assessment of whether leases are onerous immediately before the date of initial application;

• The Company elected to measure the right-of-use asset on a lease by lease basis at an amount equal to the lease liability, adjusted

for previously recognized prepaid or accrued lease payments.

As at October 1, 2019, the Company recognized additional assets under Right-of-use assets and liabilities under Other liabilities on the

consolidated statements of financial position of $2.5 million each (see note 8 and 11). In addition, the nature of the expenses related to

the lease has changed as IFRS 16 replaces the straight-line operating lease expense with depreciation expense for right-of-use assets and

interest expense on the lease liabilities using the effective interest method.

The following table reconciles the operating lease payments as at September 30, 2019 to the lease liabilities recognized as at October 1,

2019:

At inception, the Company assess whether a contract is or contains a lease which involves the exercise of judgment. The company has

elected not to separate lease and non-lease components for its right-of-use (ROU) assets. The Company has elected not to recognize ROU

assets and lease liabilities for leases where the total lease term is less than 12 months, or for a lease of low value. The payments for these

leases will be recognized on a straight-line basis over the lease term as operating expenses.

Lease assets are capitalized at the commencement date of the lease and ROU assets are initially measured on the present value of the

lease payments, plus initial direct costs incurred when entering into a lease and lease payments made at or before the commencement

date, less any lease incentives received. The ROU assets are depreciated over the shorter of the lease term or the estimated useful life of

the underlying asset. An impairment review is undertaken for any ROU asset that shows indicators of impairment and an impairment loss

is recognized against the ROU asset that is impaired.

The lease liability is measured at the present value of the fixed and eligible variable lease payments that depend on an index or rate, net

of any lease incentives at the initial measurement date. When the lease contains an extension or purchase option that the Company

considers reasonably certain to be exercised, the cost of the option is included in the lease payments. The present value of the lease

payments is determined using the discount rate representing the Company’s incremental borrowing rate on the lease commencement

date, adjusted for the applicable currency of the lease contract, similar tenor and nature of the asset being leased. Variable lease

payments that do not depend on an index or rate are recognized as an expense in the period in which the event or condition that triggers

the payment occurs.



In Canadian dollars

3. Significant accounting policies and adoption of new accounting standards (continued)

(c) Annual Improvements to IFRS Standards (2015-2017) Cycle

(d) IFRIC 23 Uncertainty over Income Tax Treatments

4. Accounts receivable

March 31 September 30

2020 2019

Trade $ 4,648,260 5,649,977

Government assistance - digital media tax credits 2,058,699 1,784,861

Government assistance - other 293,781 303,160

Other 172,709 167,227

$ 7,173,449 7,905,225

5. Other assets


2020 2019

Prepaid expenses $ 562,891 236,944

Cost of obtaining a contract (current portion) 112,500 126,563

Share purchase loan (Note 19) 169,816 169,816

Total other assets $ 845,207 533,323

less: current portion (591,017) (434,885)

Long term other assets $ 254,190 98,438

9

The Company has adopted these amendments on October 1, 2019. The amendments did not have any impact on its financial statements.

On June 7, 2017, the IASB issued IFRIC Interpretation 23 Uncertainty over Income Tax Treatments . The Interpretation provides

guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income

tax treatments. The Interpretation is applicable for annual periods beginning on or after January 1, 2019. Earlier application is permitted.

The Interpretation requires:

• an entity to contemplate whether uncertain tax treatments should be considered separately, or together as a group, based on which

approach provides better predictions of the resolution;

• an entity to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and

• if it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount

or expected value, depending on whichever method better predicts the resolution of the uncertainty.

On December 12, 2017 the IASB issued narrow-scope amendments to three standards as part of its annual improvements process. The

amendments are effective on or after January 1, 2019, with early application permitted. Each of the amendments has its own specific

transition requirements. Amendments were made to the following standards:

• IFRS 3 Business Combinations and IFRS 11 Joint Arrangements - to clarify how a company accounts for increasing its interest in a

joint operation that meets the definition of a business;

• IAS 12 Income Taxes – to clarify that all income tax consequences of dividends are recognized consistently with the transactions

that generated the distributable profits – i.e. in profit or loss, OCI, or equity; and

• IAS 23 Borrowing Costs – to clarify that funds borrowed specifically to finance the construction of a qualifying asset should be

transferred to the general borrowings pool once the construction of the qualifying asset has been completed. They also clarify that an

entity includes funds borrowed specifically to obtain an asset other than a qualifying asset as part of general borrowings.

The Company has adopted these amendments on October 1, 2019. The amendments did not have any impact on its financial statements.



In Canadian dollars

6. Goodwill and other intangible assets

Courseware Customer

and other Technology Relationships Goodwill Total

Cost

October 1, 2018 $ 61,815 3,142,103 2,905,000 1,853,131 7,962,049

Disposals - (903,061) - - (903,061)

September 30, 2019 $ 61,815 2,239,042 2,905,000 1,853,131 7,058,988

March 31, 2020 $ 61,815 2,239,042 2,905,000 1,853,131 7,058,988

Accumulated amortization and impairment losses

October 1, 2018 $ 61,815 2,877,655 1,659,143 - 4,598,613

Amortization - 164,671 259,857 - 424,528

Disposals - (903,061) - - (903,061)

September 30, 2019 $ 61,815 2,139,265 1,919,000 - 4,120,080

Amortization - 87,689 116,000 - 203,689

March 31, 2020 $ 61,815 2,226,954 2,035,000 - 4,323,769

Carrying values

October 1, 2018 $ - 264,448 1,245,857 1,853,131 3,363,436

September 30, 2019 $ - 99,777 986,000 1,853,131 2,938,908

March 31, 2020 $ - 12,088 870,000 1,853,131 2,735,219

7. Property and equipment

Computer Furniture

equipment fixtures and Leasehold

and software equipment Improvements Total

Cost

$ 905,550 817,229 193,956 1,916,735

Additions 611,706 54,121 308,634 974,461

$ 1,517,256 871,350 502,590 2,891,196

Transfers (Note 8) (168,994) (87,735) - (256,729)

Additions 106,842 23,360 16,747 146,949

$ 1,455,104 806,975 519,337 2,781,416

Accumulated depreciation

$ 717,208 783,376 192,487 1,693,071

Depreciation 237,918 17,805 37,660 293,383

$ 955,126 801,181 230,147 1,986,454

Transfers (Note 8) (161,192) (77,251) - (238,443)

Depreciation 139,492 6,885 54,019 200,396

$ 933,426 730,815 284,166 1,948,407

Carrying values

$ 188,342 33,853 1,469 223,664

$ 562,130 70,169 272,443 904,742

$ 521,678 76,160 235,171 833,009

10

The Company has transferred the carrying value of computer equipment and furniture, fixtures and equipment of $18,286 held under

finance lease and previously classified as property and equipment as at September 30, 2019 to right-of-use assets.

March 31, 2020

March 31, 2020

March 31, 2020

September 30, 2019

September 30, 2019

October 1, 2018

October 1, 2018

October 1, 2018

September 30, 2019



In Canadian dollars

8. Right-of-use assets

Furniture

Office Computer fixtures and

Cost Lease equipment equipment Total

$ 2,513,400 - - 2,513,400

Transfers (Note 7) - 168,994 87,735 256,729

Additions 24,070 36,272 - 60,342

Disposals - (32,253) - (32,253)

$ 2,537,470 173,013 87,735 2,798,218

Accumulated amortization

$ - - - -

Transfers (Note 7) - 161,192 77,251 238,443

Disposals - (23,653) - (23,653)

Amortization 247,145 6,688 4,301 258,134

$ 247,145 144,227 81,552 472,924

Carrying values

$ 2,513,400 - - 2,513,400

$ 2,290,325 28,786 6,183 2,325,294

9. Long-term debt and operating facilities


Term 2020 2019

Government assistance debt:

Province of Newfoundland and Labrador - 4.75% (a) 2016-2020 - 41,249

Government of Nova Scotia - 5% (b) 2013-2022 408,583 497,260

Atlantic Canada Opportunities Agency - non-interest bearing (c) 2018-2023 1,765,735 1,971,408

Atlantic Canada Opportunities Agency - non-interest bearing (d) 2015-2019 - 24,287

Strategic Innovation Fund - non-interest bearing (e) 2025-2039 681,232 444,342

2,855,550 2,978,546

less: current portion (626,802) (666,703)

Total long-term debt $ 2,228,748 2,311,843

(a) Province of Newfoundland and Labrador - 4.75%

(b) Government of Nova Scotia - 5%

(c) Atlantic Canada Opportunities Agency - non-interest bearing

11

During 2011, the Province of Newfoundland and Labrador converted an equity investment into a $500,000 term loan bearing interest at

4.75% per annum secured by a general security agreement. The loan was repayable in monthly blended payments of $12,500 until

December 2019 and a final payment of $4,512 was made in January 2020. The loan had been recorded using the effective interest

method and the difference between the proceeds received and fair value was recognized as government assistance.

On February 23, 2017, the Company secured a $3.0 million funding contribution under the Atlantic Canada Opportunities Agency Business

Development Program to assist with working capital requirements for growth initiatives of the Company. The unsecured, non-interest

bearing loan is repayable in 60 monthly installments of $50,000 each commencing October 1, 2018. The loan has been recorded using the

effective interest method and the difference between the proceeds received and fair value is recognized as government assistance.

October 1, 2019

During 2012, the Company secured a $1.7 million term loan from the Government of Nova Scotia. The loan bears interest at 5.0% per

annum and is secured against certain property. The facility is repayable in monthly principal payments of $16,579, plus interest, until May

2022. The loan has been recorded using the effective interest method and the difference between the proceeds received and fair value

was recognized as government assistance.

October 1, 2019

March 31, 2020

March 31, 2020

October 1, 2019

March 31, 2020



In Canadian dollars

9. Long-term debt and operating facilities (continued)

(d) Atlantic Canada Opportunities Agency - non-interest bearing

(e) Strategic Innovation Fund - non-interest bearing

(f) Atlantic Canada Opportunities Agency - non-interest bearing

(g) Operating line of credit

10. Deferred development funding


2020 2019

Opening balance $ - -

Funding provided 2,220,508 -

Development cost incurred (1,436,831) -

Ending balance $ 783,677 -

11. Other liabilities


2020 2019

Lease obligations (Note 3) $ 2,358,150 23,223

Derivative liability - 33,725

Current portion of discounted royalty obligations (Note 12) 437,564 341,472

$ 2,795,714 398,420

less: current portion (920,476) (393,207) Total other liabilities $ 1,875,238 5,213

12

On May 29, 2019, the Company and The Boeing Company (Boeing) entered into an agreement whereby Boeing would contribute US$2.6

million to the Company to support the development of the next generation Special Mission Aviator Ramp Trainer (SMART) for the V-22

Osprey.

The Company has incurred $1,436,831 (including $946,467 in prior periods) of cost associated with the development of the SMART up to

March 31, 2020. During the six months ended March 31, 2020 the Company recognized an equal amount of funding corresponding to

these costs with the remainder deferred to fund future development costs associated with the simulator.

The Company has a short-term bank operating line of credit that was renewed on April 23, 2018. During the first quarter the Company

entered into an agreement to temporarily increase the line of credit to a maximum of the lesser of $3,500,000 and defined marginable

accounts receivable minus specified liabilities. The upper limit was then reduced to $2,500,000 on March 15, 2020. The revolving facility is

repayable on demand and bears interest at Royal Bank prime plus 2.20%. The Company has provided a General Security Agreement as

security for this indebtedness. As at March 31, 2020, the Company has no balance drawn against the line of credit (September 30, 2019 -

$45,000).

On May 16, 2018, the Company announced a $7.6 million repayable investment under the Strategic Innovation Fund Program to support

innovation and development of simulation capabilities. The unsecured, non-interest bearing loan is repayable in 15 annual repayments of

$735,722 commencing January 1, 2025. As at March 31, 2020 the Company has drawn $2,246,173 of the funds. The loan has been

recorded using the effective interest method and the difference between the proceeds received and fair value is recognized as

government assistance (Note 14).

During 2014, the Company secured a $500,000 funding contribution under the Atlantic Canada Opportunities Agency Business

Development Program. The unsecured, non-interest bearing loan was repayable in 60 monthly installments of $8,333 and has been repaid

in full as at March 31, 2020. The loan was been recorded using the effective interest method and the difference between the proceeds

received and fair value was recognized as government assistance.

On March 26, 2020, the Company secured a $2,000,000 funding contribution under the Atlantic Canada Opportunities Agency Regional

Economic Growth through Innovation Program. As at March 31, 2020, the balance was undrawn. Subsequent to the date of the interim

financial statements, the Company made its first draw (Note 22).



In Canadian dollars

11. Other liabilities (continued)

Lease liabilities

Three months Six months

ended ended

Expense related to short-term and low value leases $ 12,340 $ 14,024

Variable lease payments 96,782 167,026

Total lease cost $ 109,122 $ 181,050

12. Discounted royalty obligations


2020 2019

Unsecured royalty obligation $ 1,643,870 1,683,877

ACOA-AIF unsecured royalty obligation 2,684,821 2,508,890

4,328,691 4,192,767

less: current portion (included in other current liabilities) (437,564) (341,472)

Total long-term other financial liabilities $ 3,891,127 3,851,295

(a) Unsecured royalty obligation

(b) ACOA-AIF unsecured Royalty obligation

13. Share capital

(a) Authorized

Unlimited common shares without par value

(b) Common shares issued and outstanding Number of Share

Shares capital

Issued and outstanding at October 1, 2018 97,933,776 5,457,889$

Shares repurchased and cancelled under normal course issuer bid (219,500) (10,975)

Shares issued on exercise of share options 9,943,517 1,469,464

Issued and outstanding at September 30, 2019 107,657,793 6,916,378

Issued and outstanding at March 31, 2020 107,657,793 6,916,378$

13

The Company has recognized Atlantic Canadian Opportunities Agency - Atlantic Innovation Fund (ACOA-AIF) contributions of $2,531,111

pursuant to a 2008 agreement, as amended and ACOA-AIF contributions of $2,984,419 pursuant to a 2012 agreement. The Company

must repay the contributions by annual instalments calculated as 5% of the gross revenues generated from products and product related

services resulting from the research funded. As of March 31, 2020, $531,477 (September 30, 2019 - $531,477) has been repaid.

The unsecured royalty obligation agreement requires BPLI to pay a royalty of 1.0% of revenues in perpetuity with a minimum royalty

payment of $17,541 per month. The terms include a buyout option allowing the Company to extinguish 100% of all amounts owing upon

payment of $2,000,000. The obligation has been recorded using the effective interest method. During the quarter, management revalued

the unsecured royalty obligation due to a change in forecasted future cash flows and as a result recognized a gain of $179,485 (Note 15).

For the six months ended March 31, 2020 the Company recognized $49,465 of interest expense on the lease liabilities as finance costs in

the consolidated statement of comprehensive income (loss).

The following amounts are recognized as general and administration costs in the consolidated statement of comprehensive income (loss)

for the three and six months ended March 31, 2020:



In Canadian dollars

13. Share capital (continued)

(c) Earnings (loss) per share

2020 2019 2020 2019

Common shares issued and outstanding, beginning of year 107,657,793 97,829,276 107,657,793 97,933,776

Weighted average shares purchased through normal course issuer bid - (61,567) - (107,740)

Weighted average shares issued on exercise of share options - 2,935,310 - 1,443,329

Weighted average shares in treasury stock (5,756,651) (5,756,651) (5,756,651) (5,756,651)

Weighted average number of shares used in basic

and diluted earnings per share 101,901,142 94,946,368 101,901,142 93,512,714

14. Government assistance and other funding

2020 2019 2020 2019

Government assistance included in income: $

National Research Council 177,629 133,000 400,372 133,000

Innovate NL 11,407 98,092 39,962 102,587

Digital Media Tax Credits 236,718 44,896 397,553 100,131

Discounts on below-market interest rate debt (Note 9) - 159,048 475,080 352,237

Other indirect government assistance included in income:

The Boeing Company (Note 10) 365,932 - 1,436,831 -

$ 791,686 435,036 2,749,798 687,955

15. Finance costs, net

2020 2019 2020 2019

Interest on long-term debt $ 21,048 24,440 40,922 53,182

Accretion of other financial liabilities 219,013 216,359 432,842 426,383

Accretion of long-term debt 59,660 70,698 121,101 144,409

Short-term interest and bank charges 16,850 5,105 43,986 9,266

Interest on finance lease obligations 24,240 724 49,465 1,544

Other finance costs - 18,400 - 30,346

Total finance cost 340,811 335,726 688,316 665,130

Revaluation of financial liabilities (179,485) (105,499) (179,485) (105,499)

Other interest income - (12,586) - (48,799)

Total finance income (179,485) (118,085) (179,485) (154,298)

Total finance costs, net $ 161,326 217,641 508,831 510,832

14

Three months ended

March 31

Six months ended

March 31

Three months ended Six months ended

March 31 March 31

March 31 March 31

Both basic and diluted earnings per share have been calculated using the profit attributable to shareholders as the numerator. The

reconciliation of the weighted average number of shares for the purposes of basic and diluted earnings per share is as follows:

During the year ended September 30, 2019, 219,500 shares were purchased under the above normal course issuer bid for $28,640. The

purchases resulted in a decrease to share capital and deficit of $10,975 and $17,665, respectively. The Company accounts for purchases

under the constructive retirement method whereby shares are treated as cancelled upon repurchase in line with managements intention

to subsequently cancel the purchased shares within a reasonable period.




In Canadian dollars

16. Other (gains) and losses

2020 2019 2020 2019

Gain on disposal $ - - (4,000) (64,841)

Bad debt expense (recovery) - - (2,607) -

Share based compensation - 845 - 1,604

Foreign exchange (gain) loss (191,734) (672) (104,354) 8,242

Total other (gains) and losses $ (191,734) 173 (110,961) (54,995)

17. Changes in non-cash working capital

2020 2019

Accounts receivable $ 741,306 1,959,465

Contract assets 409,669 (381,683)

Work in progress (210,233) -

Other current assets (156,132) (348,731)

Other long-term assets (155,753) 169,816

Accounts payable and accruals (1,268,389) 725,490

Deferred development funding 783,677 -

Contract liabilities (74,905) (140,038)

$ 69,240 1,984,319

18. Expenses classified by nature

2020 2019 2020 2019

Salaries and other labour costs $ 4,372,347 4,985,905 8,692,747 9,041,047

Materials, services and supplies 1,286,292 610,958 2,366,669 1,192,804

Travel and living 122,817 159,942 273,206 305,371

Occupancy 101,184 224,312 181,050 422,313

Professional fees 263,629 528,350 493,047 690,461

Other costs 51,714 110,730 172,243 280,063

Total expenses classified by nature $ 6,197,983 6,620,197 12,178,962 11,932,059

19. Related party transactions

(a) Share purchase loans

15

March 31

The Company has provided share purchase loans to a director of the Company. As collateral for the non-interest bearing share purchase

loans, the borrower has granted the Company a security interest in a portion of the shares purchased. The loans are repayable in full on

or before December 31, 2021. As at March 31, 2020, the total amount receivable was $169,816 (September 30, 2019 - $169,816) and is

included in other long-term assets on the statements of financial position (September 30, 2019 - other current assets).

Certain expenses are classified by function in the statement of comprehensive income. These include Direct costs, Sales and marketing,

General and administration, and Research and development costs. A schedule of these expenses presented by nature is as follows:

Transactions with related parties are in the normal course of operations and are measured at the exchange amount, which is the amount

of consideration established and agreed to by the related parties. Related party transactions include:

Three months ended


March 31 March 31

Six months ended

March 31 March 31

Six months ended



In Canadian dollars

19. Related party transactions (continued)

(c) Key management personnel

2020 2019 2020 2019

Fees, salaries and benefits to key management personnel 376,090$ 385,536$ 600,140$ 568,961$

(b) Rental lease

20. Financial instruments

(a) Currency risk

(b) Credit risk

21. Segment reporting

16

Currency risk is the risk to the Company's earnings that arise from fluctuations of foreign exchange rates and the degree of volatility of

these rates. The Company is exposed to foreign currency exchange risk on transactions incurred in US dollars. During the six months

ended March 31, 2020, the Company recorded a $104,374 gain on foreign currency (2019 - $8,242 loss). The Company monitors

fluctuations in exchange rates and uses derivative instruments to reduce its exposure to foreign currency risk.

Credit risk arises from the potential that a counter party will fail to perform its obligations. The Company is exposed to credit risk from

customers. In order to reduce its credit risk, the Company reviews a new customer's credit history before extending credit and conducts

regular reviews of its existing customers' credit performance. The Company’s maximum exposure to credit risk corresponds to the carrying

value of accounts receivable and unbilled work in progress. Two customers accounted for 46% of revenue (2019 – two customers - 52%)

and three customers accounted for 51% of the Company’s trade receivables at March 31, 2020 (September 30, 2019 – two customers -

62%).

An allowance for doubtful accounts is established based a provision matrix that is based on historical credit loss experience, adjusted for

forward-looking factors specific to the debtors and the economic environment. The allowance for doubtful accounts at March 31, 2020,

was $251,459 (September 30, 2019 - $258,483). At March 31, 2020, the Company’s trade accounts receivable included amounts over 90

days old totaling $21,587 which were not considered to be impaired and therefore not included in the allowance for doubtful accounts

(September 30, 2019 - $921,404).

Effective October 1, 2011, the Company entered into a rental lease with an entity controlled by the Company’s beneficial controlling

shareholder. The arrangement provides for the lease of 100% of the premises at 18 Prescott Street, St. John’s, NL with an initial term of

six years and has a four year renewal option. On September 28, 2017, the Company renewed the lease for the four year renewal term,

which expires on September 30, 2021. The lease includes an initial net lease rate for two years with escalation provisions every two years

thereafter. Included in Other liabilities on the consolidated statements of financial position is a lease obligation of $1,043,517 for the

rental of premises. The Company adopted IFRS 16 (Note 3), and as a result, rent expense is included under general and administration

occupancy expenses, finance costs and depreciation and amortization in the amounts of $74,228, $21,836 and $93,750 respectively.

Key management personnel include the President and Chief Executive Officer, the Chief Financial Officer, Corporate Secretary and the

directors of the Company.

March 31 March 31

During the six months ended March 31, 2020, the Company recorded revenue of $5,458,664 from contracts denominated in US dollars

(2019 - $4,238,327). As at March 31, 2020, the Company held receivables of $1,457,983 from contracts denominated in US dollars

(September 30, 2019 - $3,528,659).


BPLI Holdings Inc.’s is the publicly listed holding company for its two wholly owned operating divisions, Bluedrop Training and Simulation

Inc. and Bluedrop Learning Networks Inc., to which it provides management oversight and shared corporate and financial services.

Bluedrop Training and Simulation business unit is one of Canada’s leading providers of comprehensive training solutions for the defence

sector. With over 40 years’ experience and hundreds of training devices delivered it prides itself on its resume and skilled work force.

Bluedrop Training and Simulation provides a full suite of products and services ranging from; training needs analysis and design,

courseware and technical documentation, training information management systems, training program delivery, virtual reality based

trainers and simulators and in service support for larger simulators and programs. It services all branches of the defence sector including

naval, air force and army operations as well as other security agencies.



In Canadian dollars

21. Segment reporting

Bluedrop

Learning

Networks

Bluedrop

Training and

Simulation

Corporate

and OtherTotal

Revenue

Courseware development services $ 760,973 2,451,161 - 3,212,134

In-service support - 6,033,707 - 6,033,707

Software licensing and subscriptions 1,967,781 263,147 - 2,230,928

Simulation products - 836,916 - 836,916

2,728,754 9,584,931 - 12,313,685

Direct costs 771,421 4,994,805 - 5,766,226

Gross profit 1,957,333 4,590,126 - 6,547,459

Expenses

Sales and marketing 558,858 476,751 - 1,035,609

General and administration 669,979 793,597 1,013,452 2,477,028

Management fee 211,240 898,288 (1,109,528) -

Research and development costs 1,178,479 1,721,620 - 2,900,099

Government assistance and other funding (256,232) (2,018,486) (475,080) (2,749,798)

Finance costs - - 508,831 508,831

Depreciation and amortization 188,795 333,028 140,396 662,219

Other (gains) and losses 11,716 (146,816) 24,139 (110,961)

2,562,835 2,057,982 102,210 4,723,027

(Loss) earnings before income taxes $ (605,502) 2,532,144 (102,210) 1,824,432

Bluedrop

Learning

Networks

Bluedrop

Training and

Simulation

Corporate

and OtherTotal

Revenue

Courseware development services $ 1,086,778 1,626,755 - 2,713,533




2,419,892 6,492,096 - 8,911,988

Direct costs 867,888 4,123,503 - 4,991,391

Gross profit 1,552,004 2,368,593 - 3,920,597

Expenses

Sales and marketing 700,644 369,995 2,610 1,073,249

General and administration 588,857 1,055,491 1,443,782 3,088,130

Management fee 305,161 825,064 (1,130,225) -

Research and development costs 1,721,829 1,057,460 - 2,779,289

Government assistance and other funding (168,092) (167,626) (352,237) (687,955)

Finance costs - - 510,832 510,832

Depreciation and amortization 139,885 251,679 (49,900) 341,664

Other (gains) and losses (57,022) (13,731) 15,758 (54,995)

3,231,262 3,378,332 440,620 7,050,214

(Loss) earnings before income taxes $ (1,679,258) (1,009,739) (440,620) (3,129,617)

17

Segment profit or loss includes revenues and costs directly attributable to the operations of the segment. In addition management

apportions a management fee based on a appropriate allocation of resources to those segments. Segment information for the reporting

periods is as follows:



Bluedrop Learning Networks business unit is pioneering the development and adoption of a software as a service based training and

delivery platform providing large scale customers with the ability to engage, track training and monitor training of large users groups

spread out of multiple locations. It provides the complete service offering and solutions to meet the operational requirements of its clients

from designing the training requirement, to building custom content, to operating and supporting the training and delivery platform.

Revenues are generated from, recurring platform licences, custom courseware development, consulting services, and the sale of

commercial off-the-shelf courses.



In Canadian dollars

21. Segment reporting (continued)

Bluedrop

Learning

Networks

Bluedrop

Training and

Simulation

Corporate

and OtherTotal

Total assets as at March 31, 2020 $ 6,010,299 12,285,162 1,014,579 19,310,040

Total liabilities as at March 31, 2020 $ 6,308,006 3,257,013 8,760,636 18,325,655

Total assets as at September 30, 2019 $ 3,170,396 13,399,501 1,000,754 17,570,651

Total liabilities as at September 30, 2019 $ 5,421,179 3,117,282 9,028,500 17,566,961

Bluedrop

Learning

Networks

Bluedrop

Training and

Simulation

Corporate

and OtherTotal

Revenue

Courseware development services $ 392,426 1,072,625 - 1,465,051




1,396,065 4,775,419 - 6,171,484

Direct costs 357,120 2,470,145 - 2,827,265

Gross profit 1,038,945 2,305,274 - 3,344,219

Expenses

Sales and marketing 284,057 257,717 - 541,774

General and administration 315,482 359,216 526,392 1,201,090

Management fee 67,626 426,574 (494,200) -

Research and development costs 545,453 1,082,401 - 1,627,854

Government assistance and other funding (80,119) (711,567) - (791,686)

Finance costs - - 161,326 161,326


Other (gains) and losses 25,050 (234,928) 18,144 (191,734)

1,253,827 1,342,795 280,006 2,876,628

(Loss) earnings before income taxes $ (214,882) 962,479 (280,006) 467,591

Bluedrop

Learning

Networks

Bluedrop

Training and

Simulation

Corporate

and OtherTotal

Revenue

Courseware development services $ 641,725 905,256 - 1,546,981


Software licensing and subscriptions 741,909 37,489 - 779,398


1,383,634 3,639,645 - 5,023,279

Direct costs 465,311 2,203,257 - 2,668,568

Gross profit 918,323 1,436,388 - 2,354,711

Expenses

Sales and marketing 317,661 189,427 2,610 509,698

General and administration 138,699 120,612 1,572,221 1,831,532

Management fee 350,722 948,248 (1,298,970) -

Research and development costs 1,010,912 599,487 - 1,610,399

Government assistance and other funding (168,092) (107,896) (159,048) (435,036)

Finance costs - - 217,641 217,641


Other (gains) and losses 7,905 41,216 (48,948) 173

1,705,191 1,886,025 314,284 3,905,500

(Loss) earnings before income taxes $ (786,868) (449,637) (314,284) (1,550,789)

18

Three months ended March 31, 2020

Three months ended March 31, 2019



In Canadian dollars

21. Segment reporting (continued)

Revenue by geographic location

2020 2019 2020 2019

Canada $ 5,776,672 4,694,175 11,491,308 8,309,949

United States 92,169 315,952 177,332 529,031

Other 302,643 13,152 645,045 73,008

$ 6,171,484 5,023,279 12,313,685 8,911,988

The revenue information above is based on locations of the customers.

22. Comparative figures

22. Subsequent events

Atlantic Canada Opportunities Agency

Strategic Innovation Fund

19

Subsequent to the quarter end, the Company made additional draws against the $7.6 million repayable investment under the Strategic

Innovation Fund Program (Note 9). Proceeds of these draws totalled $853,891. The difference between proceeds received and fair value

is recognized as government assistance.

Subsequent to the quarter end, the Company has drawn $1,534,960 against the Atlantic Canada Opportunities Agency - non-interest

bearing loan. The difference between the funding drawn and the fair value is recognized as other income (Note 9).


March 31 March 31

Certain comparative figures have been reclassified to conform with the March 31, 2020 financial statement presentation. Specifically, the

prior period segment note has been reclassified to conform with the March 31, 2020 presentation.

Documents

BPLI Holdings Inc. · custom courseware development, training products, low cost simulation and in-service support solutions to improve the safety, productivity and efficiency of